1.
Open the T-accounts for each of the balance sheet accounts, and enter the beginning balance for the current year.
1.
Explanation of Solution
T-account:
T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability,
This account is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.’ An account consists of the three main components which are as follows:
- (a) The title of the account
- (b) The left or debit side
- (c) The right or credit side
T-accounts for each of the balance sheet accounts are as follows:
Cash | |||
Beg. | 22,000 |
Investments (short-term) | |||
Beg. | 3,000 |
Accounts Receivable | |||
Beg. | 3,000 |
Equipment | |||
Beg. | 50,000 |
Factory Building | |||
Beg. | 90,000 |
Intangibles | |||
Beg. | 5,000 |
Accounts Payable | |||
15,000 | Beg. |
Accrued Liabilities Payable | |||
4,000 | Beg. |
Notes Payable (short-term) | |||
7,000 | Beg. |
Long-Term Notes Payable | |||
47,000 | Beg. |
Common Stock | |||
10,000 | Beg. |
Additional Paid-in Capital | |||
80,000 | Beg. |
31,000 | Beg. |
2.
Prepare the T-account for the given balance sheet accounts, and to determine the ending balance of each account.
2.
Explanation of Solution
T-account:
T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability, stockholder’s equity, revenue, and expenditure items are recorded.
This account is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.’ An account consists of the three main components which are as follows:
- (a) The title of the account
- (b) The left or debit side
- (c) The right or credit side
T-accounts for each of the balance sheet accounts are as follows:
Cash | |||
Beg. | 22,000 | ||
(e) | 11,000 | 10,000 | (a) |
(f) | 9,000 | 5,000 | (b) |
(i) | 1,000 | 5,000 | (c) |
3,000 | (g) | ||
8,000 | (h) | ||
12,000 |
Investments (short-term) | |||
Beg. | 3,000 | ||
(a) | 10,000 | ||
13,000 |
Accounts Receivable | |||
Beg. | 3,000 | ||
3,000 |
Inventory | |||
Beg. | 20,000 | ||
20,000 |
Notes Receivable (long-term) | ||||
Beg. | 1,000 | |||
(b) | 5,000 | |||
6,000 |
Equipment | |||
Beg. | 50,000 | ||
(c) | 18,000 | 1,000 | (i) |
End. | 67,000 |
Factory Building | |||
Beg. | 90,000 | ||
(h) | 24,000 | ||
End. | 114,000 |
Intangibles | |||
Beg. | 5,000 | ||
(g) | 3,000 | ||
End. | 8,000 |
Notes Payable (short-term) | |||
7,000 | Beg. | ||
13,000 | (c) | ||
9,000 | (f) | ||
29,000 |
Accounts Payable | |||
15,000 | Beg. | ||
15,000 |
Accrued Liabilities Payable | |||
4,000 | Beg. | ||
4,000 |
Long-Term Notes Payable | |||
47,000 | Beg. | ||
16,000 | (h) | ||
63,000 |
Common Stock | |||
10,000 | Beg. | ||
1,000 | (e) | ||
11,000 |
Additional Paid-in Capital | |||
80,000 | Beg. | ||
10,000 | (e) | ||
90,000 |
Retained Earnings | |||
31,000 | Beg. | ||
31,000 |
3.
Explain the response for event (d).
3.
Explanation of Solution
Business transaction:
Business transaction is a record of any economic activity, resulting in the change in the value of the assets, the liabilities, and the stockholder’s equities, of a business. Business transaction is also referred to as financial transaction.
In this case, hiring a new president is not creating any impact on assets, liabilities and stockholder’s equity of the business, because it is not a business transaction.
4.
Prepare the
4.
Explanation of Solution
Trial balance:
Trial balance is the summary of accounts, and their debit and credit balances at a given time. It is usually prepared at end of the accounting period. Debit balances are listed in left column and credit balances are listed in right column. The totals of debit and credit column should be equal. Trial balance is useful in the preparation of the financial statements.
Trial balance of Company C is as follows:
Company C | ||
Trial balance | ||
At December 31 | ||
Particulars | Debit ($) | Credit ($) |
Cash | 12,000 | |
Investments (short-term) | 13,000 | |
Accounts receivable | 3,000 | |
Inventory | 20,000 | |
Notes receivable (long-term) | 6,000 | |
Equipment | 67,000 | |
Factory building | 114,000 | |
Intangibles | 8,000 | |
Accounts payable | 15,000 | |
Accrued liabilities payable | 4,000 | |
Notes payable (short-term) | 29,000 | |
Notes payable (long-term) | 63,000 | |
Common stock | 11,000 | |
Additional paid-in capital | 90,000 | |
Retained earnings | 31,000 | |
Total | 243,000 | 243,000 |
Table (1)
Therefore, the total of debit, and credit columns of trial balance is $243,000 and agree.
5.
Prepare a classified balance sheet of Company C.
5.
Explanation of Solution
Classified balance sheet:
This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.
Classified balance sheet of Company C on December, 31 is as follows:
Company C | ||||
Balance sheet | ||||
December, 31 | ||||
Assets | $ | Liabilities | $ | |
Current assets: | Current liabilities: | |||
Cash | 12,000 | Accounts payable | 15,000 | |
Investment | 13,000 | Accrued liabilities payable | 4,000 | |
Accounts receivable | 3,000 | Notes payable | 29,000 | |
Inventory | 20,000 | Total current liabilities | 48,000 | |
Total current assets | 48,000 | Long-term notes payable | 63,000 | |
Total liabilities (A) | 111,000 | |||
Notes receivable | 6,000 | Stockholders' equity | ||
Equipment | 67,000 | Common stock | 11,000 | |
Factory building | 114,000 | Additional paid-in capital | 90,000 | |
Intangibles | 8,000 | Retained earnings | 31,000 | |
Total stockholder's equity (B) | 132,000 | |||
Total assets | 243,000 | Total liabilities and stockholder’s equity | 243,000 |
Table (2)
Therefore, the total assets of Company C are $243,000, and the total liabilities and stockholders’ equity is $243,000.
6.
Calculate the
6.
Explanation of Solution
Current Ratio:
A part of
Calculate the current ratio of Company C as follows:
Here,
Current assets = $48,000
Current liabilities= $48,000
Therefore, the current ration of Company C is 1.00
Current ratio of Company C has relatively low liquidity, because for every one dollar of current liabilities, Company C has only equal amount of one dollar of current assets.
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Chapter 2 Solutions
FINANCIAL ACCOUNT.(LL)-W/ACCESS>CUSTOM<
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